Here’s another in a long and steady drumbeat of bad economic news. The US is in a recession, and so is most of the rest of the world. From Wolf Richter at wolfstreet.com:
Business sales worst since 2012, inventories at crisis level, jobs next.
Total business sales fell again in February, the Commerce Department reported today. They include sales by manufacturers, retailers, and wholesalers of all sizes across the US economy. This measure is far broader than the aggregate sales by publicly traded companies, which too have been falling.
At $1.284 trillion in February, total business sales were down an estimated 0.4% from January, adjusted for seasonal and trading-day differences but not for price changes. And they were down 1.4% from the already beaten-down levels of February last year. They’re back where they’d first been in November 2012!
By segment: Manufacturers’ shipments fell 3.5% year-over-year to $444.6 billion. Sales by retailers rose 3.1% to $360.6 billion, propped up in part by auto dealers. And sales by wholesalers fell 3.1% to $395.8 billion.
With optimism running wild about a booming Fed-designed future, executives have been hoping in aggregate that sales next month and next quarter would be better. But these wishes just haven’t come true. So now, way behind the curve, they’re struggling to bring their bloated inventories in line with the reality of their sales.
Manufacturers were able to trim their inventories by 2.3% year-over-year, and wholesalers were able to whittle them down 0.6%, but retail inventories soared 5.9% after having already jumped 5.7% in January following a lousy holiday season.
This brought inventories down a tiny 0.1% from January to $1.812 trillion. But they remained 1.2% higher than the already bloated levels a year ago.
The crucial inventory-to-sales ratio, which tracks how long unsold inventory sits around in relationship to sales, is now at a mind-bending 1.41. That’s the level the ratio spiked to in November 2008, after the Lehman bankruptcy in September had put the freeze on the economy.
Inventories represent prior sales by suppliers. When companies try to reduce their inventories, they cut their orders. Suppliers see these orders as sales. As their sales slump, suppliers adjust by cutting their own orders, thus causing the sales slump to propagate up the supply chain. They all react by cutting their expenses. And if it lasts, they’ll cut jobs. Inventory corrections have a nasty impact on the overall economy.
This chart shows how the inventory-to-sales ratio has totally blown out since late 2014, and what sort of inventory correction the economy is facing:
To continue reading: Why This Economy Is Now Running Aground
